Which is a better starter investment 30k rental or 80-100k?

Question

I've been reading and hearing a lot lately on how it's the quality of houses you buy, not the quantity. Ben lebovich is one who is a firm believer in not buying 30k houses to rent. Is there really a difference in the price of the house your buying to rent, if your still positively cash flowing every month and your still at a positive cap rate Or ROI in the end.

Scott Trench · Answer

I think that the fundamental question you are asking here is what matters in real estate investment - ROI, or cash flow? It's the age old question of appreciation vs cash flow - which matters more?

The answer is, it depends. I believe that for many people thinking about real estate, the keys are cash flow first, then ROI as they scale. The reason I think this is because it's hard to scale while working a full-time job. Once you have that first $5, $10, or even $20K in stable monthly cash flow, and have the resulting freedom to direct your time as you choose, more cash flow at the expense of greater appreciation potential seems kind of pointless, right?

That said, when you buy $30K houses, Ben is of course correct in the vast majority of cases. There is a high chance that there is a great reason the house is $30K. It's because it is going to do nothing beyond (at best) provide you with cash flow on your investment. It's likely not going to increase dramatically in value, attract quality tenants, be a stable, low-maintenance asset, or provide any of the real, scalable benefits of real estate investing to your life.

Personally, I choose to buy assets that produce reasonable, but not incredible cash flow, but have plenty of potential for appreciation. And I buy them in cities and neighborhoods that are growing, not declining. If I don't firmly believe that the property's location will be more desirable in 30 years than it is today, then I feel that the property won't serve either my cash flow or ROI goals.

Stephen Franco · Answer

I have my stack of 20 or 30 K properties, and my be /c grade tenants to go along with them.

There is headaches, but there's profit at the end of every month.

I'm moving now into higher and rentals and other capacity investments but I will continue to grow that sector of my rental business, because there are always people in that sector.

Now, in my particular market 30k is not a complete crackhead apartment 30k is a nice supper blue collar lower white collar rental

. Take 30k to Boston and I don't think you could buy a parking spot

Alexander Felice · Answer

I think what Ben really means is that cheap, D quality houses that seem like dogs, are dogs. Yeah they may be cheap to get into, but they cost more money (higher turnover, lower quality tenants) over time which negatively affects your ROI. They also don't appreciate, you can't borrow against them, etc.  It's a cash flow machine and he argues that it seems better on paper than it really is (and he is right).

the part I disagree with is the dollar amount. are all 30k houses the same, nope. are all 30k house areas the same, nope. So while a 30k house may be a dog in his area (and most). that's not to say you can't SPEND 30k to buy a house that might be worth more and find good profit.

Scott was also correct in that cash flow is really important early and less important later. As your income grows your cost of living might not grow in tandem. You'll now be willing to trade some of that high cash flow, for low volatility.

David Dachtera · Answer

I can't really improve on what @Scott Trench said.

"It depends". What are YOUR goals?

Get a LOT of $30K houses cash flowing (to minimize the impact of a single vacancy)?

Get some $80K houses cash flowing and hold them long enough to see some appreciation, tax benefits, etc.?

Get a few $x00K houses cash flowing and leverage the equity they build to acquire more?

Truly, "it depends". Really, it's up to YOU!

David J Dachtera

"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."- DJ Benedict

Jeff B. · Answer

IMO, cash flow IS what REI is about, sort of like a coupon bond, you collect as time progresses.  So I took months to find a property that produced a CF I was pleased to work for (aka manage the facility & tenants).  Reaping $1.95 was not worth my time.

Aaron Montague · Answer

That seems like a fun challenge :)

30k doesn't do it on Realtor.com:http://www.realtor.com/realestateandhomes-detail/1...http://www.realtor.com/realestateandhomes-detail/1...

Nothing on CraigsList at this point either :)

http://boston.craigslist.org/gbs/reb/5434856021.ht...

But back to the 30k question.  A 30k investment is fine as long as you have the repairs, ROI and minimum cash/month dealt with.  The primary issue with most 30k investments is the lack of gross income.

I require my SFH investments to get $200/month cash.  But I'm also only looking at them if that is at least 15% ROI.  Obviously any 30k investment netting 200/month is going to exceed 15% by a ways.  The final critical item is the repair budget.  I'm also going to be putting away at least $150/month, or more depending on the age of the home, for future repairs.

The primary problem with roofs: A 800 sq foot roof on a 30k house is not significantly cheaper than an 800 sq foot roof on a 600k house.

Justin Frye · Answer

@Scott Trench very well said I think your way of viewing investments is ideal and a great route to take

Justin Frye · Answer

Thank you @David Dachtera @Scott Trench Jeff Beard

Justin Frye · Answer

Jeff Beard i completely agree with your thought process thanks again for the great feedback

Michele Fischer · Answer

Justin, you may want to read Buy and Hold Forever, it is a great book for understanding the advantages of purchasing better properties.

We started int he low end properties, and they are cash flowing and starting to appreciate a tiny bit.  I don't think we will always be int his niche, though, it is draining.  It is also more expensive and more difficult to get conventional financing on the lower valued property.

Which is a better starter investment 30k rental or 80-100k?

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